The appellants appealed against rejection of their claim that there had been an unlawful distribution of capital when the appellant had sold the share capital of a subsidary at an undervalue to the respondent purchaser. The valuation had miscalculated the existence of an indemnity against liability to repair leasehold properties.
Held: The appeal failed. The question of whether there had been an unlawful distribution of capital at common law was an issue of the substantial effect of the transaction, and not its form. An entirely objective view would be repressive and unworkable, and the court should look to the true nature and purpose of the transaction. In this case the parties had intended a true commercial sale and purchase, and it was not to be set aside.
Lord Phillips, President, Lord Walker, Lord Mance, Lord Collins, Lord Clarke
[2010] UKSC 55, UKSC 2009/0146, [2011] 2 All ER 432, [2011] 1 WLR 1, [2011] BCC 196, [2011] WLR 1, [2011] Bus LR 260
Bailii, SC Summary, SC, Bailii Summary
England and Wales
Citing:
Cited – Parke v Daily News Ltd 1962
The company which had sold its business, through its Board of Directors, had resolved to pay 1 million pounds to its former workers and the widows of such former workers. A shareholder sought to prevent this happening on the ground that such a . .
Appeal from – Progress Property Company Ltd v Moorgarth Group Ltd CA 26-Jun-2009
What are the circumstances in which a sale of assets at an undervalue by a company to, or at the behest of, a shareholder in the company should be held ultra vires on the ground that, in substance, the sale is an unlawful distribution in disguise? . .
Cited – Ridge Securities Ltd v Inland Revenue Commissions ChD 1964
The taxpayer companies had purported to pay interest on debentures, but these payments were ultra vires and void.
Held: The court upheld the Special Commissioners’ disallowance of payments of interest ‘grotesquely out of proportion to the . .
At First Instance – Progress Property Co Ltd v Moore and Another ChD 15-Oct-2008
There had been a complex deal between companies transferring shares from one to another. It was now sought to have the transaction set aside on the basis that there had been such an undervaluation of its shares as to amount to an unlawful . .
Cited – Rolled Steel Products (Holdings) Ltd v British Steel Corporation and Others CA 1986
The plaintiff company had guaranteed borrowings, using powers within the memorandum of association, but for purposes which were held to be improper, because they were not in the interests of the plaintiff company itself. One issue was whether the . .
Cited – Re Halt Garage (1964) Ltd ChD 1982
The company was a husband-and-wife business running a garage. They worked hard to build up the business, which included recovering broken-down vehicles from the nearby M1. They paid themselves modest remuneration as directors. In 1967 the wife . .
Lists of cited by and citing cases may be incomplete.
Company
Updated: 01 November 2021; Ref: scu.426898